Workers Comp Payroll Audit: A $1.73M Overtime Lesson

A payroll error and a workers' comp audit problem are often the same error, found twice.

The Department of Labor recovered $1.73 million in back overtime wages from a single Tennessee contractor in June (US DOL, June 2026). The State Group Industrial, a multi-trade contractor at Ford's electric-vehicle campus, paid incentive bonuses to 1,666 hourly workers and left those bonuses out of the regular rate it used to calculate overtime. "The State Group violated federal law when it excluded bonuses from its overtime calculations, averaging more than $1,000 in back wages owed to each employee," said Wage and Hour Division Administrator Andrew Rogers (US DOL, June 2026). Divide the recovery by the headcount and the average lands near $1,039 a worker.

The case isn't an outlier. The DOL recovered more than $259 million in back wages for workers in 2025 (US DOL, January 2026). For a construction CFO, the wage-and-hour exposure is real. But there's a second bill attached to the same numbers, and it usually arrives first.

The same dollars show up twice

Here's the part a controller feels later. The bonus dollars missing from that overtime calculation are the same dollars NCCI (the National Council on Compensation Insurance) counts as remuneration on your workers' comp policy. Nondiscretionary bonuses, incentive pay, and the overtime you actually owe are all reportable payroll. Correct the wage-and-hour problem and you've enlarged the payroll base your premium audit measures. The FLSA correction and the premium true-up are two readings of one number.

That cuts the other way too. Payroll you report loosely to your carrier is payroll a state or federal wage audit can reconcile against. The books don't get to tell two stories.

The overtime premium exclusion is a rule, not a default

NCCI's Basic Manual lets you exclude the premium portion of overtime, one-third of time-and-a-half pay, one-half of double-time, but only when your records break overtime out separately (NCCI Basic Manual, Rule 2). Miss that recordkeeping and the entire overtime figure, premium portion included, gets counted at the manual rate.

A contractor running heavy overtime on a schedule-driven job can hand the auditor a larger base than the rules require, simply by not separating the columns. The exclusion is money the manual leaves on the table for you. It's forfeited by default, claimed only on purpose.

Trade-level allocation is where five figures hide

Walk one number. Say a contractor runs $2 million of field payroll split across trade class codes. A 5% misallocation, $100,000 landing in the wrong code, isn't a rounding error when construction codes carry sharply different rates. Move that $100,000 into a code rated roughly $12 per $100 of payroll higher than where the work actually belongs, and manual premium shifts about $12,000 before the mod ever touches it. Then the experience modification rate (EMR, or "the mod") scales it. A contractor sitting at a 1.20 mod turns that $12,000 into roughly $14,400 of billed premium on a single line.

The direction decides who pays. Payroll parked in too high a code overcharges you now. Payroll parked in too low a code sets up an audit assessment later, often with interest. Neither is visible from the invoice total.

What an audit would check

An audit checks whether the payroll on your worksheet is the payroll the rules actually define. That means overtime separated so the premium portion can be excluded where the state allows it. It means bonus and incentive pay treated as remuneration, neither missing nor double-counted. It means field payroll allocated to the trade actually performed, not the crew's default code. In our reviews of Southeast contractor worksheets, at least one of these is usually drifting, and the drift runs both ways.

A clean payroll base won't fix an FLSA problem. It will make sure you're not paying a workers' comp premium built on the same mistake. Send us your NCCI worksheet and we'll review it for free.